NEW DELHI: All India Drug Action Network, the non-government organisation that forced the government to regulate prices of 348 essential drugs, is set to challenge the pricing mechanism finalised by a group of ministers in the Supreme Court.

The move could further delay implementation of the policy that has been pending for the past 10 years. A group of ministers (GoM) led by agriculture minister Sharad Pawar had on Thursday decided to recommend fixing retail prices of 348 essential drugs at the weighted average of brands that have more than 1% market share. Pawar said the GoM would send its proposal to the Union Cabinet for approval in a week.

"Market-based pricing is ridiculous," said Colin Gonsalvez, the lawyer who is representing the health group. "It is actually abandoning drug regulation."

Gonsalvez said under the proposed policy, the maximum retail prices of essential drugs would be around the existing retail prices of costlier brands in a segment. This would legitimise the high pricing of popular brands, he said.

Acting on a petition by the health group, the Supreme Court on September 11 rapped the government for sitting on the policy for 10 years. The court asked the government to fix the policy by September 27, adding that if it fails, the court will pass an interim order. The court was due to hear the matter on Thursday but it was postponed.

Health groups are demanding continuation of the existing methodology of fixing prices of drugs using the cost of production criteria. Drug manufacturers say this model is archaic and non-transparent. During the GoM, one of the members even questioned the rationale of regulating prices when the health ministry was to soon launch a programme under which essential drugs would be given free of cost to poor patients, a person privy to the meeting said.

Health groups had opposed a market-based policy even at the draft proposal stage. In their response to the pharmaceutical department's October 2011 draft proposal, which planned to fix the ceiling of retail prices using the average of brands method, they had termed the proposal against the spirit of the court order.

In 2003, the All India Drug Action Network (AIDAN) successfully challenged the government's proposal to reduce the number of drugs under price control from the current 74 bulk drugs to about half. The apex court asked the government to regulate prices of essential drugs.

The government is expected to strongly contest the health group's charges. According to two government officials, the GoM had to balance the public drug pricing concerns and industry's growth.

"The pricing in India is used as a reference to fix prices in several countries, so, any unreasonable pricing in India would adversely hit our exports," a government official involved in finalising the policy told ET. India exported medicines worth $13.2 billion last year.

The official said that the AIDAN was trying to dictate the policy beyond what has been ordered by the Supreme Court. "The Supreme Court's order said that 'essential drugs should not fall out of price control'. What AIDAN is asking is not price regulation but cost-based price regulation," the official said.

Incidentally, drug makers say the government's proposal will increase access of essential medicines for the poor while hurting their revenues by 15-17%. They say it will bring down drug prices of these vital drugs by about 11%.